Why LTC Partnerships Will Ultimately Save Medicaid Costs

A recent report from the Government Accountability Office argued that state Partnerships for LTC programs “are unlikely to result in Medicaid savings.”

I disagree. Because the GAO documented its methodology well, I was able to identify several refinements to its calculations that would have dramatically changed its conclusions. In stark contrast to the GAO findings, I conclude that Partnership programs will produce Medicaid savings that are likely to be significant.

In reviewing my rough estimates, please note the nature of the GAO calculation: Medicaid Benefit Reductions (MBR) – Increased Expenses (IE) = Medicaid Savings.

If MBR=100 and IE=99, the equation becomes 100-99=1 unit of savings. If MBR should be 150, the result becomes 51. In this example, a 50% error in either MBR or IE produces a 5000% error in Medicaid Savings.

My conclusions are based on the following points:

1. I believe the GAO analysis ignored differences in long term care insurance purchasing based on affluence. Compared to less affluent people, more affluent people are much more likely to:

oPurchase LTC insurance in the absence of state Partnership programs;

oBuy longer benefit periods;

oHave significant assets to spend down after policy expiration before qualifying for Medicaid;

oHave significant assets available for estate recovery; and

oBe income-ineligible or home-asset-ineligible following policy expiration.

On top of that, I conclude that the less affluent are more likely to over-insure, although with short benefit periods

Reflecting these considerations would have removed any fears of Medicaid expense increases and projected at least 75% more in Medicaid benefits reductions.

2. I believe the GAO ignored investment, pension and Social Security income that would accrue while on claim and the additional investment income that would subsequently accrue on protected Partnership assets. Such income would increase GAO’s projected Medicaid benefit reductions by more than 67%.

3. The GAO ignored the value of the Partnerships’ mandatory compound benefit increase features, which I’ve roughly estimated will add 25% to the value of traditional LTC insurance.

4. The GAO overestimated the likelihood that people would buy traditional LTC insurance if there were no Partnerships. A small 5% error (e.g., 75% vs. their 80% figure) would increase Medicaid benefits reductions by more than 25%.

I have not estimated the impact of the following:

5. The GAO’s results were distorted by assuming that all policies have 3-year benefit periods and that all policies expire after 3 years of LTC.